Fewer Homes for Sale in Sacramento, and the Trend May Continue Into 2013

There are far fewer homes for sale in Sacramento this year compared to last, and it’s driving home prices up. A major reduction in foreclosure filings could carry this trend into 2013. That’s the Sacramento real estate market in a nutshell, as of October 2012.

Number of Sacramento Homes for Sale Down by 60%

Over the last year or so, we have seen a massive reduction in the number of homes for sale in Sacramento.

Sacramento neighborhood. Photo by David Sawyer.

From September 2011 to September 2012, the city experienced a 60% reduction in for-sale inventory, according to Realtor.com.

That was the second-largest drop of all 146 metro areas tracked by Realtor.com (Stockton-Lodi, CA was #1 with a 63% drop in inventory).

This, above all else, is what’s driving home prices right now.

According to Zillow, inventory has fallen sharply within the lower pricing tier, in particular. The number of Sacramento homes for sale in the $313,000-and-below price range declined by more than half, over the last year or so.

This is a major change for first-time home buyers, who often buy on the lower end of the pricing spectrum. Such buyers can expect to find limited inventory and stiff competition when they enter the market.

Some have used the word ‘shortage’ when describing the residential real estate market in Sacramento. In a recent article on CNBC.com, on the subject of housing shortages, Diana Olick noted that cities like Sacramento “were swarmed by these [bargain hunting] investors, who were looking to convert this distress into rental rewards.”

Foreclosure Slowdown Across the County

Inventory could fall even further, given the recent trends on the foreclosure front. According to DataQuick, a company that compiles data for the real estate industry, foreclosure activity in California recently fell to its lowest point since the start of 2007. That trend is occurring in Sacramento as well, and it could lead to even fewer homes for sale over the coming months.

In Sacramento, the number of default notices given to homeowners fell by 36.4%, between the third quarter of 2011 and the same period this year. Trustee deeds, which occur when the bank actually forecloses, fell by 46.1% during the same period. In Q3 2011, there were 4,351 default notices and 2,867 trustee deeds issued in the state capital. In Q3 2012, those numbers had fallen to 2,766 and 1,544 respectively.

Not only will this reduce the total number of homes for sale in Sacramento. It will greatly reduce the number of distressed homes in particular. Distressed properties tend to put downward pressure on home prices across the board, because they are often priced below their true market values. So a major reduction in this area could be a boon for property values over the coming months.

Home Prices Heading North, Year Over Year

Given the dramatic changes to the inventory situation in the Sacramento metro area, one would expect to see home prices rising. In fact, we have seen some major price jumps in certain parts of the city. The median sale price in Fair Oaks rose by 30% over the last year or so, according to DataQuick. In North Highlands, the median price rose by 38.4%.

Of course, not all parts of the county matched this trend. The median price fell over the past 12 months in Carmichael and Sloughhouse. But overall, home prices within the county and the broader metro area seem to be on the rise.

According to Trulia, the median sale price in Sacramento (citywide) rose by 19.7%, from July to September 2011 to the same three-month period in 2012.

Educated Guess: The Sacrament Real Estate Market in 2013

So what’s in store for the Sacramento real estate market in 2013? What can local home buyers and sellers expect, as we turn the page on another year of housing drama? My guess is we will see more of the same.

Given the recent trends (and what they forebode), I would expect to see a further decline in the number of Sacramento homes for sale. Housing demand will be boosted by consumer confidence and low mortgage rates, but countered by the county’s higher-than-average unemployment rate. Demand will continue to be strong among investors.

Investor activity, combined with the major drop in foreclosure activity, will further reduce the number of ‘deals’ to be found. Home buyers on the lower end of the price spectrum will encounter limited inventory and, in some cases, bidding wars for desirable properties. Déjà vu.

Disclaimer: The forward-looking statements contained in this article represent an educated guess about future conditions within the Sacramento real estate market. We make no guarantees or assertions about the future of home prices, mortgage rates, foreclosure trends, or any other aspects of this market. We encourage buyers to conduct plenty of in-depth research before making an investment decision.